Earlier in the day, crude fell by as much as $1.51, or about 2%, to $67.90 a barrel in intra-day trade. That's its lowest level since Sept. 30, 2009 when oil slumped to $66.33 a barrel in intra-day trade.

Gasoline prices at the pump fell for the 13th consecutive day, slipping to $2.852 a gallon from $2.867 the day before, according to a survey by motorist group AAA.

What's moving the market: Thursday marks the expiration date of the June futures contract, and investors often reverse their positions a day ahead of an expiration date, said Phil Flynn, a senior market analyst with PFG Best.

Oil traders also mulled over a mixed report from the U.S. Energy Information Administration, which showed oil supplies last week exceeded inventory limits across all three major categories: crude, gasoline and distillates.

Crude stockpiles increased by 200,000 barrels from the previous week. Analysts surveyed by research firm Platts, were expecting crude stocks to be up about 950,000 barrels.

Meanwhile, gasoline stocks fell by 300,000 barrels, less than the 450,000 expected by analysts. Distillate fuel, a category that includes heating oil and diesel, decreased by 1.0 million barrels.

Inventories are rising faster than demand can keep up, and that discourages oil traders from holding the next month's futures contracts. Overall, oil prices have fallen by about $18 per barrel this month, as investors also worry that economic instability in Europe may cut demand for fuel.

Germany's financial regulator announced late Tuesday a ban on so called naked short sales. The ban, which remains in effect until March 31, 2011, includes the sale of debt securities issued by euro zone countries, as well as the country's 10 leading financial firms.

Investors worry that the trade restriction indicates further weakness in the euro zone. Oil is traded in dollars, so when the euro falls and the dollar rises, it makes oil more expensive for foreign investors and, as a result, cuts demand for the commodity.

On Friday, oil for July delivery will become the active trading contract.